From Mark Grant, author of Out of the Box
The Cross Of Forbearance
“Destiny guides our fortunes more favorably than we could have expected. Look there, Sancho Panza, my friend, and see those thirty or so wild giants, with whom I intend to do battle and kill each and all of them, so with their stolen booty we can begin to enrich ourselves. This is noble, righteous warfare, for it is wonderfully useful to God to have such an evil race wiped from the face of the earth."
"What giants?" asked Sancho Panza.
"The ones you can see over there," answered his master, "with the huge arms, some of which are very nearly two leagues long."
"Now look, your grace," said Sancho, "what you see over there aren't giants, but windmills, and what seems to be arms are just their sails, that go around in the wind and turn the millstone."
"Obviously," replied Don Quixote, "you don't know much about adventures.”
-Miguel Cervantes
The wind picked up across the plains, the windmill began to turn and “The Ingenious Gentleman Don Quixote of La Mancha” rode out once more to do battle. The ever faithful Sancho Panza, not wishing to be left behind, was in attendance and the windmills were now the banks and the regional debt of the country.
You see, the Troubadour, Mariano Rajoy, does not wish the country to take any responsibility. It is to be the banks, not to injure the pride of the nation, that are the culprits and the banks, run by the empanada consortium, who are to be blamed. The IMF has released a statement claiming the banks need about $46bn which is the typical posture of the IMF these days; underestimating liabilities and then finding that more money is needed later; which they already knew of course. “Under estimate the liabilities and over estimate the assets” is the mantra sung at the IMF these days at the morning prayers as their credibility is as certain as the stature of the giants fought by Don Quixote.
The extra money, suggested in the IMF report to ring wall the banks, is another gust of wind as it is directed to the regional debts of course which no one wants to mention as the faceless Men in Black ride into Madrid to claim their latest victim. The beating of chests can be heard in Andalusia as there is no ESM; it does not yet exist regardless of the panderings of the savants that ride the airwaves. Germany has not even voted on it yet so that that ballyhoo that the ESM is the “Saving Grace” is the stuff and fluff from which nonsense is composed. There is the EFSF but it is no authority to issue money directly to the Spanish banks or any other banks for that matter. The ECB could issue directly to the Spanish banks but the screams would be loud in Belgium, France and Ireland as none of their banks were similarly helped so this path is effectively closed. No, it will be the EFSF lending money directly to Spain who will then re-deploy to its banks, and discreetly its regions, as the Cross of Forbearance is removed from the Cathedral in Madrid and replaced with a photo of Judas Iscariot who failed his Sovereign in the end.
The real number, if you look at the Regional debt, the needed aid for the banks, the contagion at the already infected two major banks is somewhere around $400 billion which is not present in the EFSF; there is not enough “promises to pay” left in this fund. Ring walls, contingent liabilities which are not counted in Europe is about to have to be funded and the thought of coming up with that amount of real cash will not be one of the pleasanter discussions when all of the European Finance Ministers converse by telephone later today. As these people do not have painful conversations without request it is reasonable to assume that Spain has already shouted “Uncle” which is why the meeting has been called. There has been no official admission of this of course because Spain knows that once the official announcement has been made that there is no way back as the hordes ride in once again and as the trumpets of the Goths echo one more time on the fortress walls of Barcelona and Valencia. With the addition of new debt, the decline in GDP and the factual counting of liabilities the actual debt to GDP ratio for Spain is somewhat north of 180% which Spain will decry as a false proclamation but which counts the Spanish sovereign debt, the Regional Government guarantees, the bank guarantees, the Spanish obligations at the EU and the ECB and is nothing more than simple addition divided by the official Gross Domestic Product.
The problems continue to multiply as Moodys threatens a Spanish sovereign downgrade and as the margin demands at the clearing houses will certainly be raised again soon. A Spanish bailout will also remove Spain’s ability to support other troubled periphery countries so that their 12% of any guarantees will have to be shifted to the other funding nations so that the dominos on the Continent keep falling one-by-one with the fallen tiles heading directly towards Rome. The tragedy so long feared is about to be the tragedy that has arrived and the dreams of a Euro glittering in the afternoon sun is about to be a very dark nightmare which no longer vanishes in the first moments of being roused and awake.
“Truly I was born to be an example of misfortune, and a target at which the arrows of adversary are aimed.”
-Don Quixote